EBA709: Business Valuation

INTRODUCTION
In an economy, every manufacturing & trading entity inherently has financial transactions. These
financial transactions form the backbone of accounting framework, which is as important as technical
or legal framework. Knowledge in Financial Accounting enables managers understand and interpret
financial reports which is essential for financial decision making & problem solving. A manager
should be competent to understand the accounting framework to effectively manage the business.

Current corporate restructuring strategies include mergers, acquisitions, hostile takeovers and the
market for corporate control, financial re-capitalization, leveraged buyouts, management buyouts,
going-private decisions and so on. Leaders at decision making levels have to be aware of the
strategies and use them effectively integrating corporate governance and agency dimensions, financial
and strategic management aspects, and legal and accounting considerations into a unified framework

LEARNING OBJECTIVES
To analyse the components and prepare financial statements
To analyse the main features, create and maintain a firm’s accounting information
To analyse the financial statements of a company.
Understand and create an interface or link between various dimensions of corporate restructuring
process.

LEARNING OUTCOMES
Upon successful completion of this course, students will be able to:
Analyse financial statements using ratio analysis.
On completion of this course, student should be able to:
Define various financial practices involved with corporate control
Understand cases involved in business restructuring and turnarounds, mergers and acquisitions, and
financial reorganization transactions.
Understand comprehensive strategic perspective, a framework of conceptual and theoretical
paradigms, and applied tools for deal design and corporate valuations.

COURSE CURRICULUM
UNIT 1
Uses & Limitations of Financial Statements, Stakeholders of financial statements. Content of annual
reports. Reporting regulations in India.
Tools and techniques of financial statement analysis. Interrelations between accounting ratios and
between financial statements and their line items for strategic analysis.

UNIT 2
Contribution margin and Equation techniques. Comparative Statement, Types of business
combinations, Special purpose vehicle organizations, Consolidated financial statements. Inter-
company transactions and profit confirmations. Use accounting disclosures to adjust financial
statements. Window dressing, Concepts on sickness, distress. Recent scandals in financial reporting.

UNIT 3
Report preparation of financial statement analysis (using a template), Use ratio analysis to understand
and compare firms. Discuss concept of short term liquidity, operating performance and efficiency,
capital structure, long-term solvency, profitability. Spotting strengths and weaknesses. Verifying
creditworthiness of a firm
UNIT 4
Corporate Governance - Owners, Stakeholders, Directors and Board Structure. Chief executive officer
(CEO), chairperson, senior independent director, and company secretary. Private equity and
institutional investors. Role, duties, and responsibilities in strategy and risk management;
Directors’ Performance and Remuneration. Performance measures. Remuneration of executive and
non-executive directors.
Director evaluation; Succession planning. Corporate Control Strategies. Risk Management. Ethics and
Management. Internal Control Framework. Corporate Fraud

UNIT 5
Mergers and Acquisitions. What is corporate restructuring is and why it occurs. commonly used
takeover tactics and defenses; Financial re-capitalization, leveraged buyouts, management buyouts,
going-private. Assumptions underlying business valuations and their role; Decision of M&A. Deal
structuring. Components of the deal that determine price; Applying financial modeling tools to
evaluating mergers and acquisitions;

Alternative deal structures; How value is created (or destroyed) as a result of corporate mergers,
acquisitions, divestitures, spin-offs, etc., How to “do a deal;” Alliances/joint ventures as alternatives
to mergers and acquisitions. Exits. Ways to exit. Advantages and disadvantages

Project work to be submitted (Case to be given by instructor)

Example: 1. Explain overview of the case

2. Evaluation of Short Term Liquidity
3. Evaluation of Operating Performance and Efficiency
4. Evaluation of Capital Structure and Long-Term Solvency
5. Evaluation of Profitability
6. Evaluation of Market Measures (Ratios)
7. “Strengths” and “Weaknesses” based on evaluations.
8. Provide opinion for:
a. Investment Potential (Would you buy stock; discuss)
b. Creditworthiness (Would you lend money; discuss)

TEXT BOOK
Advanced Corporate Finance: Policies and Strategies by Ogden, Jen, O'Connor Applied Corporate
Finance by Damodaran.

REFERENCES
Principles of Corporate Finance by Brealey, Myers, Allen and Mohanty

JOURNALS
Management Review, IIM, Bangalore